Foreclosure

If you are a homeowner, it’s vitally important to understand when and how you need to defend yourself when faced with a foreclosure.  Many homeowners believe foreclosure means automatically losing the house, but this isn’t always true. What happens when you go into foreclosure depends on a number of different factors, such as your financial situation and whether you decide to defend yourself and your home against foreclosure. Of course if you do nothing, you are nearly guaranteed to lose the home and have a serious stain on your credit.

What Are The Foreclosure Rules In Canada?

First, keep in mind that while lenders can start foreclosing as soon as you miss a single payment, they generally never do this. Foreclosures are expensive and time consuming, so it’s in the lender’s interest (and certainly in yours) to find a compromise. Often it’s possible to work out an alternate payment plan to bring your mortgage current and avoid foreclosure. The lender only resorts to foreclosure in order to prevent themselves from losing money, after all.

Second, it’s important to understand that in a number of provinces, foreclosures are not actually used. Since foreclosures require court intervention — which costs time and money — many provinces allow lenders to use a Power of Sale, which does not involve the court until the end. In a Power of Sale the lender can take control of the property and sell it off in a matter of weeks, whereas in foreclosures the process takes somewhere between three and twelve months.

These are general guidelines only. Please consult your solicitor for legal advice.

Assuming your mortgage requires judicial foreclosure and does not allow the lender to go through Power of Sale, foreclosures begin like a lawsuit. The lender, now known as the Plaintiff, files a document with the court known as a Statement of Claim. The Plaintiff also serves you — you are now known as the Defendant — with a copy of the Statement of Claim.

Once you have been served with a copy of the Statement, you have 20 days to file your reply (and serve a copy of your reply on the Plaintiff. Your reply can generally take the form of either a Statement of Defence or a Demand for Notice.

If you do not reply, the Plaintiff will note to the court that you are “in default” in terms of the court action. (The lender has already claimed you are in default on your mortgage, this is a separate kind of default.)

If you are declared “in default” with respect to the foreclosure action, this means you have decided not to fight the process and you will be given no further chances to defend yourself. You will also not be kept informed of the court proceedings.

Regardless of whether you choose to defend the foreclosure action, the lender then files a number of other statements with the court, finally applying to the court for a remedy (which is a way for the lender to recoup their money). The court almost always issues an order at this point — the exception is if the court finds that the lender had no reason to foreclose because you did not actually default on your mortgage.

Normally, the order that the court issues at this point in the case is a Redemption Order. A Redemption Order is actually beneficial to your case, since it gives you a certain time period to bring your mortgage up to date or pay it off entirely. Normally this period is 6 months, though you can ask to extend it and the lender may ask to shorten it.

During the redemption period, you can effectively stop the foreclosure if you are able to come up with the necessary money.

In some cases, usually if the Court believes you have no chance of coming up wit the money, the Court may skip issuing the Redemption Order and go straight to issuing an Order for Foreclosure or Order for Sale.

If you have not been able to make the payments the court specified during the redemption period, the court will then issue an Order for Foreclosure or Order for Sale. The former directly transfers the property to the lender (Plaintiff), whereas the second will result in a sale under control of the court. Once either the lender or the new buyer has taken possession of the property, you will have 30 days to leave.

Understanding Mortgage Foreclosure Canada

The word “foreclosure” represents a nightmare for both property owner and lender. A mortgage foreclosure in Canada is a legal action the lender can take if someone who borrowed money via a mortgage stops paying it back. Foreclosure lets the lender sell or take back that person’s house after obtaining a court’s permission.

It’s important to note that the property owner does not automatically lose their property if they make a late payment or miss a mortgage payment. Most lenders prefer not to foreclose if it’s not absolutely necessary — Canada’s foreclosure process is expensive and lengthy. Generally, lenders do not start foreclosing until two to three months after the borrower stops paying.

The lender will first mail the borrower letters which demand payment. Only if they do not get a reply will the lender start foreclosure proceedings and generally also a lawsuit at the same time.

It’s important to note also that foreclosures differ from province to province. Traditional foreclosures are more common in British Columbia, Saskatchewan, Alberta, Manitoba, Nova Scotia, and Quebec. On the other hand, much more common in Ontario, Prince Edward Island, New Brunswick, and Newfoundland is a process known as “Power of Sale” — this does not require a court’s involvement and tends to go much faster.

What Happens When a Lender Starts Foreclosing??If your property is located in a town which has a Supreme Court Registry, the lender must start the legal proceedings there. When they do, you will be mailed a document known as a “Petition for Foreclosure.” This is the official notification from the lender that they have asked the court to help get back the money the lender loaned you.

What Should I Do If I Receive a Petition for Foreclosure??You should immediately get legal advice. In order to take part in the proceedings and protect yourself, you will have to file what is known as a Response to Petition, including supporting affidavits, inside 21 days of receiving the Petition for Foreclosure. (The Response must be filed at the court address listed on the Petition, and you must also deliver two copies of the Response to the lender.) Depending on the jurisdiction, you may also have to file other forms.

After you have done all this, you will be notified if anyone takes any steps in the foreclosure process. On the other hand, if you do not do this, the foreclosure process will proceed without you, and it will not be possible to protect yourself.

Once your Response to Petition is filed with the court, you will receive what is known as a Notice of Hearing. This tells you the date and time when the lender will appear before the judge to ask for what’s called an “order nisi” in order to begin the foreclosure.

What Happens at The Foreclosure Hearing??

Generally the court will go ahead and give the lender the “order nisi” as requested, but it will generally also give you some time to “redeem” your mortgage. You can do this by paying off the full amount owed, plus taxes, costs, and interest.

The time you are given to pay off the mortgage is the “redemption period.” It is usually six months, but the lender may ask the court to reduce the redemption period. It’s important to note that the court can issue an order allowing the sale of your house at any stage of the proceedings, including the initial order nisi stage.

This means it’s very much in your interest to be at the court hearing — you can ask the court to give you the maximum amount of time to pay the mortgage. You can also ask for an extension if you need more time. Of course, the court will want you to justify this request by explaining what you’ve done to pay off the mortgage so far, and will want to know what your chances are of paying the mortgage off on your own.

For this, the services of a good lawyer will be invaluable, since they will be able to advise you on all your options. We are not lawyers and this is not legal advice.